Can any of the company-specific risk be diversified away by investing in both Lucid and EBay at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Lucid and EBay into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lucid Group and eBay Inc, you can compare the effects of market volatilities on Lucid and EBay and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Lucid with a short position of EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lucid and EBay.
The 3 months correlation between Lucid and EBay is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Lucid Group and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc and Lucid is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Lucid Group are associated (or correlated) with EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Lucid i.e., Lucid and EBay go up and down completely randomly.
Given the investment horizon of 90 days Lucid Group is expected to under-perform the EBay. In addition to that, Lucid is 2.98 times more volatile than eBay Inc. It trades about -0.02 of its total potential returns per unit of risk. eBay Inc is currently generating about 0.11 per unit of volatility. If you would invest 4,957 in eBay Inc on March 5, 2024 and sell it today you would earn a total of 465.00 from holding eBay Inc or generate 9.38% return on investment over 90 days.
Over the last 90 days Lucid Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Lucid is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
Compared to the overall equity markets, risk-adjusted returns on investments in eBay Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, EBay may actually be approaching a critical reversion point that can send shares even higher in July 2024.